The finance ministry has approved a proposal to give public sector bank chairmen and managing directors (CMDs) a fixed tenure of three years to help them implement long-term strategies smoothly. Sources said finance minister P Chidambaram has cleared the proposal and sent it to the appointments committee of the Cabinet for final clearance. It is likely to be implemented from April 1, they said.
At present, most CMDs serve for one to two years as their appointments typically come closer to their superannuation date.
A CMD’s appointment is currently linked to the date of superannuation or five years, whichever is earlier. This weakness was highlighted by a committee on human resources issues of public sector banks headed by former Bank of Baroda CMD AK Khandelwal, which submitted its report in June 2010.
Public sector bank officials retire at 60. The committee pointed out the need for giving a fixed tenure of four to five years to CMDs in order to help them plan on long-term strategies and prepare their organisations for the future. State-owned lenders are dominant players in the banking sector and 26 public sector banks account for nearly 70% of the banking credit in the country.
A CMD at a public sector bank wishing not to be quoted, said: “Unless the CMD is fully aware of a bank's culture and its strengths and weaknesses, it is impossible to implement any strategy within one or two years — the term most chiefs serve right now. In an ideal situation, CMDs should have a fixed term of at least three years to execute a medium-term plan. A slightly longer term strategy is possible if they get five years.”
As many as nine CMDs of PSBs are slated to retire in 2013-14 in banks including IDBI Bank, Andhra Bank, Bank of Maharashtra, Syndicate Bank, Corporation Bank, Union Bank of India and Central Bank of India. Recently, the government appointed RK Dubey as CMD Canara Bank, SA Panse to head Allahabad Bank and Ashwini Kumar to lead Dena Bank.
Another serving CMD said a fixed tenure of three years would help officials leave a mark by preparing and implementing forward-looking strategies. This is especially important because of the government's focus on expediting financial inclusion, he said.
The Khandelwal committee argued that PSBs are likely to face a management crisis from 2012. “Leadership gaps in PSBs are palpable in as much as that in the next five years, 80% of GMs, 65% of DGMs, 58% of AGMs and 44% of CMs would be retiring,” the committee said. CMDs need fixed tenure for effective succession planning.